Bharat Dynamics Limited, a defense public sector undertaking engaged in the manufacturing of ammunitions and missile systems, has seen its stock price decline significantly in recent trading.
BDL shares are currently trading 3.85% lower at Rs 1,700.00 compared to the previous close. However, a closer look at Bharat Dynamics’ fundamentals and growth prospects suggests the recent decline may present a buying opportunity for long-term investors.
Overview of Recent Share Price Movement
After hitting a 52-week high of Rs 1,982 in October 2022, Bharat Dynamics share has corrected nearly 14% to current levels. Just in the past 5 trading sessions, the stock is down 16.00%.
On Thursday, BDL shares opened gap-down at Rs 1,745 and continued to slide during the trading session. The stock traded in the range of Rs 1,764 – Rs 1,691 before closing at Rs 1,700, recording a loss of 3.85%.
But Strong Fundamentals Remain Intact
Despite the sharp decline recently, Bharat Dynamics continues to exhibit strong fundamentals that underline its long-term growth potential:
1. Robust Financial Performance
Bharat Dynamics has delivered robust financial performance so far in FY 2023.
- In Q2 FY23, BDL’s net profit jumped nearly 35% YoY to Rs 147.09 crore on the back of strong revenue growth.
- Topline grew by 29% YoY to Rs 1,220 crore driven by higher execution of orders.
- Operating profit margin also expanded to 21.4% from 19.2% in Q3 FY22.
The company’s order book remains healthy at over Rs 12,000 crore, providing revenue visibility for 2-3 years.
2. Attractive Valuations
After the recent correction, Bharat Dynamics stock has become more reasonably valued:
- The stock is now trading at a trailing P/E ratio of 44x, compared to its historical 5-year average P/E of 48x.
- P/E is lower than the industry average of 35x for defense companies.
- P/B ratio of 3.8x is also below historical average of 4.2x.
3. Strong Growth Prospects
With India looking to enhance its domestic defense production capabilities, the outlook for players like BDL remains robust.
- Bharat Dynamics is well placed to benefit from the ‘Make in India’ push and higher allocation to defense in Budget 2023.
- The company specializes in manufacturing missiles and related defense equipment. It enjoys a virtual monopoly in India’s missile sub-systems manufacturing.
- BDL is looking to diversify into new growth areas like underwater weapons, counter-drone systems etc. It also aims to grow exports substantially.
- The company has scheduled a capex of around Rs 400 crore in FY23 to ramp up production capacities. This will help drive growth over the coming years.
What Analysts are Saying About Bharat Dynamics
Bharat Dynamics stock has received overwhelmingly positive recommendations from analysts:
- There are 5 analysts covering the stock. 3 analysts have a ‘Strong Buy’ rating, while 2 have given a ‘Buy’ call.
- Zero analysts have assigned a ‘Sell’ rating on the stock.
- Analysts have an average target price of Rs 2,060 on the stock, implying over 20% upside from current levels.
- Analysts are positive on new order prospects from the armed forces and export potential. Financial performance is expected to remain strong.
Shareholding Pattern Shows Strong Promoter Holding
Bharat Dynamics has a promoter holding of 74.93%, reflecting management’s strong confidence in the company’s future prospects.
Public shareholding in the company stands at 25.07%. Among public shareholders, mutual funds have 4.30% stake while FIIs own 3.09% equity as of September 2023 quarter.
MF ownership has come down slightly over the last quarter, but remains at healthy levels. FIIs have also marginally lowered their holding in BDL. But promoter holding remains unchanged.
The Verdict: Current Decline Presents Buying Opportunity
In summary, the nearly 15% correction in Bharat Dynamics stock from recent highs provides a good buying opportunity for investors:
- The stock appears attractively valued considering strong fundamentals and growth outlook.
- Robust financial performance likely to continue driven by higher revenues. Margin expansion also possible.
- The company is poised to benefit from the government’s increasing focus on defense indigenization. Steady order flows expected.
- Strong analyst recommendations and robust promoter holding are added positives.
Therefore, investors with a long-term horizon may consider accumulating Bharat Dynamics stock at current levels. The uptrend is likely to resume as the company continues delivering operationally. Upside potential appears healthy over the next 12-24 months.